Good day ladies and gentlemen and welcome to today’s Helen of Troy Fourth Quarter 2017 Earnings Call. Today’s conference is being recorded. And at this time I’d like to turn the floor over to Jack Jancin, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon everyone, and welcome to Helen of Troy’s fourth quarter fiscal year 2017 earnings conference call. The agenda for the call this afternoon is as follows. I’ll begin with a brief discussion of forward-looking statements. Mr. Julien Mininberg, the company CEO, will comment on the financial performance of the quarter and accomplishments of the year and then outline the areas of focus for fiscal 2018. Then Mr. Brian Grass, the company CFO, will review the financial details – financials in more detail and comment on the company’s outlook for fiscal 2018. Following this, Mr. Mininberg and Mr. Grass will take questions you have for us today. This conference call may contain certain forward-looking statements that are based on management’s current expectation with respect to future events or financial performance. Generally, the words anticipates, believes, expects, and other words similar are word to identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP financial measures are not an alternative to the GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other companies. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Mr. Mininberg, I’d like to inform all interested parties that a copy of today’s earnings release has been posted to the company’s website at www.hotus.com. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. The release can be obtained by selecting the Investor Relations tab on the company’s home page, and then the news tab. I will now turn the conference call over to Mr. Mininberg.

Thank you, Jack. And good afternoon, everyone welcome to our call. Our fourth quarter earnings were above the expectations with adjusted diluted EPS of $1.78 per share, capping a strong year in which we delivered $6.73 of adjusted earnings per diluted share, 7.7% growth versus fiscal year 2016 and ahead of our outlook. We are pleased to achieve these results they made a difficult comparison versus the fourth quarter of 2016 where both sales and profitability were particularly strong. On a full year basis, our fiscal 2017 earnings performance came despite a sluggish brick and mortar retail environment and unfavorable currency as well as the second consecutive weak cough/cold/flu season, all leading to a half a percentage point of decline in consolidated net revenue in fiscal 2017 versus last year. Hydro Flask over delivered nearly doubling its revenues and contributing strong profitability in its first year. We demonstrated the benefit of our diversified portfolio and key transformational strategies, as we delivered 22% growth in cash flow from operations in fiscal 2017. Other key growth metrics also showed progress in fiscal 2017, such as our gross profit margin, which expanded by 2.8 percentage points with improvement coming from both our core business and Hydro Flask. Adjusted operating margin improved by 0.4 percentage points. We also managed our balance sheet well with inventory down 4.1% from fiscal 2016 and we lowered our debt ratio to 2.1 times. Even as we made acquisition and opportunistically, we purchased our stock in fiscal 2017. We are now three years into our strategic transformation of Helen of Troy, so I thought this would be an opportune moment to reflect on some of the key accomplishments since we began this journey back in March of 2014. Today, we are a bigger company with net sales up 16.7%…

Thank you, Julien. Good afternoon, everyone. We’re pleased to report adjusted diluted EPS of $1.78 in the fourth quarter, even as we made incremental investment in the long-term growth of our leadership brands and felt the impacts of continued softness of brick and mortar retail and a weak cough/cold/flu season. Our adjusted EPS results reflect the favorable impacts of the Hydro Flask acquisition, mixed improvements, distribution and freight efficiency, lower tax expense and lower diluted shares outstanding. Our adjusted EPS results also include the unfavorable impact of foreign currency fluctuations, higher incentive compensation cost, hourly wage increases, higher advertising and new product development expense, higher interest expense and the negative impact from Venezuela re-measurement of approximately $0.08 per diluted share. Before I review the quarter in more detail, I’d like to provide highlights of our results for the full fiscal year 2017. For the full year, consolidated net sales decreased $8.5 million or 0.5%, reflecting an unfavorable impact from Venezuela re-measurement of $21.1 million or 1.4%. The unfavorable impact from foreign currency fluctuations of $9.7 million or 0.6% and the core business decline at $85.3 million or 5.5%, primarily due to a decrease of approximately $39.6 million or 2.6% from our rationalization of lower margin, commoditized and non-strategic business. It declined in the Nutritional Supplement segment of $22.6 million or 1.5%. The unfavorable impact of a weak cough/cold/flu season that was both below average and below that of the same period last year and the impact of lower store traffic in soft consumer spending at traditional brick and mortar retail, along with the impact of inventory rationalization by several key traditional and online retailers. These factors were partially offset by growth from acquisitions of $107.7 million or 7%. Our combined net sales to online retailers and online sales directly to…

Thank you, sir. [Operator Instructions] And our first question, we will hear come from Bob Labick with CJS Securities.

Hey, Bob.

Hi. I wanted to start with Hydro Flask. Obviously, I think probably every quarter you exceeded expectations with Hydro Flask. Can you just give us an update on the – where the growth came from, was it – break it down a little bit, distribution channels, was it faster takeaway, new products? And then also how much of the $50 million in growth for Housewares that you’re targeting in the guidance is going to come from Hydro Flask versus OXO?

Yes. So just starting with the second one, for competitive reasons it’s hard to breakout Hydro Flask in particular now that’s in our core. And frankly, it’s easier for us to do that way and not to pop the competition. We are expecting strong growth, double-digit from Hydro Flask. And as we saw in our – may see in our press release, they just can’t cross up to the whole Housewares division where we’re projecting low-teen or I think 13% – 11% to 13%, excuse me – improvement in total Housewares. OXO will also grow, pretty much in line with historical averages. So that should be enough to help you deal with on exactly the Hydro Flask number. And to the first question about the drivers, where is it coming in Hydro Flask, there’s a couple of big ones. It starts with demands, consumers are very interested in this category, the category is growing strongly and Hydro Flask is one of the biggest contributor to the growth of the category. And that’s why not only it is growing, but it’s growing share as it grows. So it’s going faster than the category itself and it’s a big piece of that growth. Why is that half growth happening? It’s happening from new products. You heard us mention in every quarterly call, and another couple. This time we talked about Drinkware which is new. So it’s not just another shape and another color, this is just a whole another segment beyond the kind of bottle that you would take outdoors, Drinkware is the kind of thing that you’d use in at home, in the office or more of an indoor environment, but nonetheless with that signature Hydro Flask branding shape feel, the colors, the outer coating, this is not like other indoor type of products. The Walks Glass as we talk about that come in indoor or an outdoor product and Drinkware is the same thing, kind of people take in their cars, they’re shape to fit exactly in cup holders, beer and that kind of think, so coffee and what people like.

But not in the car?

Yes, never beer in the car just for the official public record and we will insist on that. On the subjects of other drivers we’re getting improved distribution as well. We talked all through last fiscal year about rounding out the very strong West Coast distribution with some improvements in the Midwest. The East Coast and increasingly in the South East and then cutting across – that will happen in fiscal 2017 has help a lot, and improvements as well in the channel expansion, the number three customer for Hydro Flask is – Hydro Flask’s own website just to put perspective on it. And Amazon is the biggest customer for our Hydro Flask and while naming them what the biggest outdoor chain, one of the biggest is the number two customers for Hydro Flask. So increasing distribution considerably, I mean, online piece is very strong. My Hydro Flask that initiative that allowed people to customize certain color, cap and sleeve, bottom sleeve, bottom sleeve permutations also increase the appeal online, because those are only available through the Hydro Flask assortment – online assortment from hydroflask.com or myhydro.com. Another big driver of growth for Hydro Flask is it’s – I guess sort of nature feel as a brand, there’s just positioning for Hydro Flask describing the pool and you saw, go now to the World Surf League and right in the sweet spot. This that outdoor enthusiasts who is enjoying or benefiting from this type of activity, you saw perhaps in the press release that we just across today something like 20 million people in United States are involved in surfing and some fashion. You’re not professional at the league level, but these are casual folks and they’re living the life. And this is the kind of products that the people enjoy in those type environments where hot or cold beverages are not readily available in that kind of thing tough outdoor et cetera. And then last one was smaller. It is growing that’s international, an international is improving for Hydro Flask as well. You’ve heard us mentioned few countries. We’ve gone from the toe in the water stage to announce as we call – talk in a few earlier calls to now a couple of launches in countries like Japan, Germany, Canada and we’re feeding them frankly, and we would like to keep growing.

Well, Bob, the only – this is Brian. The only thing I would add is that I would say we have not fully penetrated some of the distribution in the U.S., so the natural foods channel, we’ve penetrated that in certain regions, but not fully penetrated across the U.S. In generally speaking we’re not fully penetrated on the eastern half of the United States. So we’ve gained a lot of ground, but there’s still some white space opportunity out there.

Yes. Good, great point, Brian. On the natural foods, I neglected to mention, it is one very big player in natural foods in the retail environment. We are not only now fully expand into Brian’s point into more and more of those doors in the pockets, where we’re not already today. But even with the distribution, we have so far we’re already the number one water bottle in the natural foods channel, because of the expansion into that big customer. So that’s what’s driving it, Bob and we’re looking to feed it. We’re investing big in fiscal 2018 across the quite a few of the leadership brands. All of them in fact including Hydro Flask and we’re using some of the strength of Hydro Flask to across fund back into that additional marketing pillar of OXO and to help to support some of the other brands at faster rate than we would otherwise do, because there’s enough to support them and pick up some very big opportunities that we see across other brands as well.

Okay, great. That’s super, helpful answer there. One kind of big picture of question and you alluded to this in some of your comments, but can you give us an update from your perspective on the retailer environment, the inventory corrections if you will, the store closings. Your views on how that is going to go in fiscal 2018 and assumingly how you’re going to grow through to it based on the guidance given – at least in certain categories. And how would affects you in doing business on a daily basis? I know it’s a big question, and it’s big topic as well.

Yes. It’s a key topic, we go primarily through retail, we have some direct-to-consumer business, but the vast majority of our products are sold through a retailer whether it’s online through a traditional brickandmortarplayer.com on I think it would like ulta.com or walmart.com or target.com, costco.com, these kinds of players are through pure play e-commerce of the Amazon type of approach. So this is a big deal for sometimes if you ask about it. I strongly concur with the kind of stuff that we are reading in the newspaper same as everyone on this call, that the retail environment is very dicey, look traffic every time, we see publish numbers they are negative comps, same-store sales for most customers are challenged not all of them, some are winning and we are winning with the winning customers. And in the case of supporting them, we are ever investing in fact endlessly investing in the support for helping to not only bring people into stores, but also to make sure our products have outstanding distribution, shelving, pricing, merchandising, visibility in those stores. So we’re supporting traditional brick and mortar and also their .com. We have some big and special projects going on in the company at the .com arms of some of our biggest customers including in beauty by the way, where we are amping up big time our digital marketing e-commerce and you heard me, mention that in comments of couple of times. On the pure play e-commerce, Amazon and others – the investments are significant and it is one of the biggest ways to grow through to your comment, some of the weakness that is happening in retail. Importantly on brick and mortar, Brian mentioned in his comments and I want to make sure everyone really focuses on it. Our…

And moving on from Sidoti, your next question comes from Frank Camma.

Good afternoon, guys.

How are you, Frank?

Hey.

Good. Julien sticking on that last – this sort of further question on what you just said about the – as it pertains to the large spend next year the $0.90. You just gave details on that, but I was wondering since you had just come off some spending here in the fourth quarter specific to a couple your brands that you called out before. Did that meet your the return that you were looking for from that spend? Or is that something we should see overtime?

Yes. I give you a funny answer. I don’t mean to be funny. It’s a little bit of pre-gaming for what we’re doing in the fiscal 2018. So we knew, we were headed in this direction and there were a couple of really good opportunities specifically on PUR, on OXO and on Hydro Flask in Q4, where we were able to invest ahead, so to speak, because we knew that some of that would be needed in Q4 like the PUR media. You’ve probably seen our new advertising campaign on PUR in multiple places both online on more traditional television and cable type of channels. And we were funding some of that in Q4. So that’s helped us, you saw us want new products in PUR at that same time in Q4, we wanted to have advertising on air to support the launch. So in that way, we got benefit during that period of time. The benefit doesn’t stop just because we snap the line on a new fiscal year on March 1, it continues in consumers’ minds and those media plans continue both digital and traditional. And in terms of the new stuff it’s very specific you were making hundreds and hundreds of new videos across this company that become content, you often hear the term content is king in the digital world and we are greatly upgrading all over the place not just in places like Housewares but in Beauty, Health & Home has already terrific content they are adding more. And in the social media, Facebook and so many others, Instagram and those two in particular are big places we’re already investing and on the whole SEO and SEM thing. The ability to find our products in that, all important page one of any search Google for example, is a place where we’re putting a lot more money. Some of that was in Q4 but the vast majority is in fiscal 2018.

Okay, great. And then just shifting to offshore, obviously, you had some brick and mortar challenges there. But where there any categories that were particularly challenged more than other within OXO itself?

Yes, always the case by the way. OXO is brand that is not afraid to launch into adjacencies, you’ve seen how many categories now in for that brand from the early days of all the kinds of kitchen gadgets to the multiple adjacencies within kitchen gadgets. So not just the stuff in your drawer, but also the salad spinners and the mandolins and even knives and cutting boards and things that wouldn’t normally go in the drawer. And those were the early days of OXO’s expansion. It’s become much more adventurous in the last 10 years or so through kitchen, started bathroom cleaning, barware through the expansions even more recently into some kitchen electrics. The strollers, which we just put out, glass and metal bakeware even a license experiment in pots and pans and so many. So it’s not surprising than to hear the answer that some do better than others and that’s always the case. But we don’t bet big on any of them in the beginning. We make an outstanding product and we feed the strong. So for example in the kitchen electrics, the one that got the best traction was coffee and not just coffee. But specifically, the 9 Cup Coffee Maker and the Burr Grinder or the coffee bought was they were two different SKUs there and of the eight SKU’s, we launched those with the best three. That’s not surprising that some of the others were not getting big traction towards the end of fiscal 2017 and it’s also not suppressing at some of those 300 products that we’re launching new in fiscal 2018 across the whole company not just the OXO have a coffee focus. And at the houseware show that we just came from in March, we had at least half a dozen really cooled in coffee products, whether it’s pour-over, glass-molded artisanal racks. A couple of years ago, we did cold brew you get the idea. So I’m sorry for the long answer but some win, some lose and it’s constant. I would much rather step up to the plate with a brand of that epic capability and take a swing obviously hit the ball a lot more than we don’t and even when we don’t, we often get on base.

Got it, got it. Look my last question just on Beauty. I mean obviously hindsight personal care but I was just wondering do you feel it maybe looking back that you went too aggressive on cutting SKUs here that might have impacted relationships with retailers or do you think that was the right move overall because it did obviously will ultimately result in higher margins?

Yes. It’s a great question. I think we did over swing the pendulum just a little bit, but the vast majority of it if we were to have a chance to do it all over again, we would do again. There were too many SKUs in the lower margin or some were in no margin and some were even negative SKUs where we could not get decent price increases or sufficient improvements nor could we make the necessary changes to the products and make them profitable. So we thought it was better to substitute them for higher margin products which we did in a lot of cases or to develop new product that just grow through and you heard us talk about the innovations in multiple times. There are some areas of the SKU rationalization however where I do think we over swing the pendulum and in certain channels in particular, for example, the close out channel is one where it differentiate enough it turns out, that those SKUs are not only value add but will not be replaced by others. And we’re back in that business in a big way actually and putting some of those SKUs back by swinging the pendulum back towards the middle. And in terms of the efficiencies, people often look at the Beauty margins and in general, they’re improving we saw that over the year even holding up in the face of the deleveraging of scale that’s happening as we unleveraged our fixed cost base faster than we can change that base and that can affect margin. But what people may not appreciate is that all through the company whether it’s in total inventory, whether it’s in the efficiency of our China operations, the consolidation of lower caliber, lower quality and lower volume factories…

Okay. Thanks, guys. I appreciate it.

And our next question comes from Jason Gere with KeyBanc Capital Markets.

Okay, thanks guys. Thanks for getting me in. I guess I have kind of a one big question and I’ll just start off with the smaller parts of it, I guess. Right now, what percentage of your sales is actually online? I’m just trying to engage the magnitude of growth that you should see in 2018. I think you said, the fourth quarter, I think it grew 30%, but that it was a little disappointing to you. So I guess what percentage of sales is it now and where do you think it will get to?

Yes, the 30% was not disappointing. What we said in our comments were it wasn’t large enough to offset the broader declines in store traffic and the inventory adjustments at both traditional and online retailer. So I would not frame it as disappointing, 30% growth is pretty strong, but the base is smaller, and we need to get that to be a meaningful part of business where it has the larger impact. The total consolidated online sales for the company is 13% and that’s up from 10% last year.

Okay. And then I’m assuming with the guidance that you’ve given on the sales that online is going to be a much bigger contributor than what you’ve said in a fourth quarter. I guess the question I’m trying to figure out is, in the environment that we’re in right now and maybe you guys are benefiting to some degree being a February year-end, you have the March numbers and maybe the April numbers behind you. So I’m just wondering what you’re seeing out there, online versus kind of what you’re seeing in the brick and mortar environment out there, that gives you the confidence. To put up, what I would say is probably really, really stellar kind of sales outlook for this year when many of your peers out there I think are struggling. So I’m just trying to reconcile all the pieces here.

Yes. I think it’s a great question. I’m glad you’re trying to pick that together, but it is actually one of the biggest themes for fiscal 2018, especially after not growing our core in fiscal 2017 and that despite the strong performance in online in which, I strongly concur with Brian’s comment, we’re no way disappointed growing 30%, I don’t think there’s too many people who would judge that…

Sorry, bad choice of word.

–: In the case of that one it’ll help us. In the case of those leadership brands, one of the very big messages around that $28 million that you heard us talk about the $0.90 that Frank was just asking about a lot of that investment is going online. So you’re exactly right that that’s a bet we’re making. It’s a bet where we have demonstrated growth at the 30%. And if you look and start picking apart the different pieces of it, Amazon this, Walmart that and all in the .com world there’s just so many ways that we can do better than what we’re doing now. We’re hiring for it. We’re designing new programs for it. We’re spending more against it. I don’t know if it’s a sure thing that we grow, but sure we’re putting our shoulder behind that and we’re putting our money where our mouth is and we’re bringing in the right talent and the rest of it for it. This is on top of what we already did before. In 2016 and 2017, we did plenty that’s how we got to 10% of our sales and now up to 13% and 17%. So it’s not like, we just woke up and started doing it. It’s been going on for years. And in the case of the other growth drivers together, there’s some pretty good organic growth in line with our long-term 2% to 3% commitment to the shareholders. There’s a lot of new products coming and some of these leadership brands have expansion opportunities in adjacent categories, some innovations and plans in their own categories and some geographic expansion as well. And all that together is enough to drive the growth, unless exchange rates just come along and crush us where we swing and miss more often than we have in the past. We feel good and that’s why we put the projection out there.

And I guess the only one that I mean of the segments you do have some easy comparisons versus last year. And I guess Housewares just 11% to 13% when OXO, I think this year was kind of doing more – I guess it was kind of flattish. So you do have some easier comparisons. I guess if you’re saying that 87% of your business is still brick and mortar, what can you say about the trends that you saw in March and April that we’ve just been hearing how bad things are in retail, maybe March got a little bit better and April is making sure enough. But what can you say out there that gets – especially I guess on the OXO business that that should return to the mid to high-single-digit growth. The other businesses I definitely understand some of the comparisons and some of the choices you’ve made and how that’s reflected I think it’s just the Housewares side I guess putting aside Hydro Flask in the growth that you’ll get there. But what will be able to really succeed I guess in the really tough macro environments?

Yes. It’s a great question. So first of all the outlook does includes a little bit we know so far about fiscal 2018. It’s very early days. We’re about 6-7 weeks into it now in March and some of April. You give us more credit for knowing how April closed and we’re just not there yet. And in the case of that being backed since the outlook is there. We’re aware and we agreed frankly that there’s not a lot of positive news so far this spring out of the macro environment. We’re talking about retail as opposed to like the politics or the taxes or something like that. And in the case of the forecast, it’s baked in. In the case of why there is confidence on OXO in particular I would definitely say that there are reasons why OXO will grow. There were specific challenges last year. I think we called them out along the year as they came along for example one of the big brick and mortar customers two quarters ago, just bought less than the POS or the point of sale growth that we were demonstrating for a multi-month period. Another big online player in OXO came along at the end of, I think it was the third quarter by the beginning of the fourth quarter and surprised us and brought a lot more and caught up with what we thought was an alarmingly big inventory depletion in their case. So we got ourselves sort of back to the normal in that one. And so, there’s a lot of variability. And I guess the reason why we’re confident as a) there’s a lot of new products, OXO’s track record is exceptional and further the online investment that we’re making in OXO is not small and that’s valuable and it will drive growth that already is. And in the case of the opportunity to improve the marketing side of OXO, I will talk about that new pillar that we’re just adding a lot to, plenty of new money out of that $28 million is going to that particular place where OXO is going to do some better branding. OXO is going to create some more awareness among consumers, which we already know from testing leads to more purchasing intends, specifically we’ve tested that and we know. And further OXO will benefit from some more OXO so to speak on its packaging. It doesn’t mean we’re walking away from Good Grips or Soft Works, it means that we’re right sizing the relative hierarchy of the packaging. And further OXO’s social media and online digital media campaigns will be amped up considerably from where they were before. So a lot of that is the enough I think to get OXO to the next stage and return it to more of those historical behaviors.

Do you have – and I know that what we’ve heard from a lot of your competitors out there and obviously you compete with a lot of players. Do they have talked to more about the second half of the year being better than the first half of the year, first half of the year obviously with some of the retail challenges out there and the second half is more innovation driven. So I was just wondering, I know you don’t give quarterly guidance, but as we think about the 1.5% to 4%, should we be thinking that you’re building in more for the back half being stronger and maybe the first half is a little bit more tepid? Or is there any kind of advice that you can give to us on the call to just kind of figure out the cadence of the year how it plays out? Thank you.

Sure. So, yes, thanks, Jason. So, I don’t think we’re at the stage of giving a lot of public guidance about quarter-by-quarter, but we have mapped it out internally. We’re not sure how every single thing will play out that’s why we don’t give the quarterly guidance. There’s too many different seasons cough, cold, seizers that summer fans something else, infections, just too many variables to be accurate. Hopefully, we’ve proven on an annual basis over the last three years that our ratio of what we say to what we do especially on the earnings side is strong and we’ve made hopefully some appropriately humble comments in the call today. We’ve demonstrated that and we did it again in just this fiscal year. In the case of the specifics on the quarter, I don’t know Brian if anything you want to add from a guidance standpoint?

No, I think it’s hard – you’re kind of making comments about general trends and back half been stronger. I think you have to be careful of that because things can be influenced by new product introductions and significant launches can offset some of these general trends you’re referring to. I would say that that generally speaking there would be a bias towards a slightly stronger second half in this business, but that’s probably the extent of where I would go with that.

Yes and the only color I put on my comment Brian is two thoughts. One is if there’s a return to normal cold and flu, it will naturally buy us towards the back half, just because that’s when the season tends to fall in Q3 and Q4 on our fiscal year. And the second is that OXO itself just happens to have more new products planned in the second half than they do in the first half. And that’s that they want some pretty good stuff towards the end of fiscal 2017 that will help to fuel the first half. So we’re not prepared to probably go much further than that on quarterly cadence.

No, I appreciate it. That’s terrific. Thanks a lot guys.

All right, ladies and gentlemen, that does conclude our question-and-answer session for today. I’d like to turn the floor back to Mr. Mininberg for any additional or closing remarks.

Yes. Well, I’ll keep it short. My main comment is thanks everyone. It’s been three years since we started this transformation. We’re proud of where we are. We think we’ve done reasonably well. There’s a lot more good to come. You hear us leaning into our business. You hear us strongly supporting our leadership brands and investing our own future both in the business as well as the organization. You hear us new capabilities coming into the company and you hear us forecasting are giving outlook for growth both in the top and the bottom line even after the strong bottom line that we just put on the board today. So thank you for joining us. We look forward to speaking with many of you in the coming days and weeks. We hope you have a wonderful evening.

Once again, ladies and gentlemen, that does conclude today’s conference. We appreciate your participation. You may now disconnect.